Sunday, March 20, 2016

ANOTHER STRING TO THE 'LITTLE' MAN'S BOW

We already know the nice Mr Little was a Union lawyer before distinguishing himself by failing to win the previous rock solid Labour seat of New Plymouth, not once but twice.  Now we can add economic illiteracy to his long list of non-accomplishments.

His musings that Labour could legislate to force banks to lower their interest rates has created some angst among his Parliamentary colleagues as evidence, yet again, of his propensity to make policy on the hoof and is proof positive (if any futher proof were needed) that he is out of his depth in understanding how bank's work.   If he did he would know that banks have to factor in 'risk' (reflect if you will on the fall-out from the dairy price payout) as well as the Reserve Bank requirement to hold more capital.   In addition, the uncertainty on global financial markets have pushed up wholesale funding costs which they rely on.

I prefer the view of David Tripe, the Director of Massey University's Centre for Banking Studies who said 'the decision not to pass on the full cut was a reflection of the upward pressure the banks were feeling in their funding costs'.   Without the cut banks may have had to increase their rates putting more pressure on borrowers.   In other words, a cut in the OCR does not automatically reduce the banks' cost of funds.

Clearly Mr Little hankers back to the days of when we had a 'command' economy.  Didn't work then (remember the wage/price freeze and the aftermath), except in the mind of Winston Peters, and won't work now.    Simple solution is to shop around.   Banks do deals based on your risk profile.

It's been a bad week for Little.   Explaining is loosing and he's had to do a lot of explaining to do and the pressure is showing through.


4 comments:

Anonymous said...

The fact that he remains leader exemplifies the shallow talent pool in his fading party.

Cadwallader

Howie said...

That's right Cockwolloper. OTOH look at the Nats! Brownlee, Joyce, Collins, Smith, Barclay! What talent. They don't have to worry about their grinning, fatuous frontman retiring do they?

The Veteran said...

Howie ... as always, attack is the best defense. Nothing on the substance of the post though. However I agree i's difficult defending the indefensible. Of course the best way to control interest rates would be to 'nationalize' of of the banks. Hold on, that doesn't stack up. If it did then pray tell why Kiwibank (owned by the Govt) is offering a 1 year fixed term rate of 4.35% and the ASB 4.15%?

But, then again, you probably don't know the answer.

Anonymous said...

I really do not understand why the island mentality of thinking that NZ is the centre of the financial universe is so predominant.

This what is happening to the rest of the worlds interest rates and the advent of "helicopter money" which was foreseen by the more astute financial commentators a year ago.

http://www.telegraph.co.uk/business/2016/03/17/central-banks-are-already-doing-the-unthinkable---you-just-dont/

Interest rates are set by the reserve bank and depending on just how independent they are from the Govt.can be manipulated for good or evil and we as small economy are subject to international pressure. Little is right in as much that if the gap in interest rates between us and our trading partners becomes a gulf then things will turn to custard.

Lord Egbut